SEC charges two with hiding condition of failed Texas bank

WASHINGTON
(AP)
–
The Securities and Exchange Commission said Friday that it charged two former executives of Franklin Bank Corp. with hiding the deterioration of the bank's finances during the mortgage crisis.

In 2008, federal regulators shuttered the Houston-based bank and seized its assets. Its parent bank holding company subsequently filed for bankruptcy protection.

According to the SEC's complaint, as Franklin's holdings of delinquent and bad loans rose significantly in the summer of 2007, Nocella and McCann put in place loan modification schemes that resulted in Franklin classifying those loans as performing.

By the end of September 2007, Nocella and McCann had used the loan modification programs to conceal more than $11 million in non-performing home loans and $13.5 million in non-performing residential construction loans, the SEC said.

As a result of the modifications, Franklin overstated its third-quarter 2007 net income by more than four times what it should have been. In 2008, Franklin acknowledged that the accounting for the loan modifications should be revised and that its financial statements for the period were incorrect.

The SEC's complaint seeks financial penalties, the repayment of bonuses and other action against Nocella and McCann. Attorneys for two men could not be reached for comment.

The complaint was filed late Thursday in U.S. District Court for the Southern District of Texas.

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